QUESTIONS ABOUT UCAN INVESTMENT

Money was meant to stay in Calif., went to out-of-state fund

Back in 2005, the Utility Consumers’ Action Network collected $2 million from a class-action lawsuit against Rent-A-Center, a furniture and accessories retailer based in Plano, Texas.

Terms of the award to the San Diego-based consumer protection group required UCAN to keep the money in California. The funds were to be set aside for nonprofit efforts to educate people about their legal rights.

The agreement was signed by former UCAN Executive Director Michael Shames seven years ago last month.

Shames invested $1 million of the award in a money-market account and later in an out-of-state hedge fund called Red Rock Capital Fund LP.

The manager “isn’t promising, or even seeking, big returns,” Shames told UCAN board members three weeks before making the investment. “His is a very controlled form of risk-avoidance through 2-5 day investments in a diverse set of sectors.”

The $1 million investment sank in value by $287,000 within a year. The rest was withdrawn in a series of transactions, leaving a zero balance by the close of 2006, according to documents obtained by The Watchdog.

Shames has denied doing anything illegal or improper at the nonprofit group. He says allegations against him were independently investigated and found to be unwarranted.

UCAN Chairman Kendall Squires said he does not remember approving the investment in the fund, even though he was copied on an email regarding the buy-in.

“Recognizing that I was unaware of it at the time, as my memory serves now, yes, I’d be troubled by it,” Squires said. “I think it is a pool to be examined.”

Documents related to the Red Rock fund were specifically cited in a grand jury subpoena issued earlier this year as part of a federal investigation of the nonprofit.

Agents also sought records on Death by China Productions, an Orange County firm cofounded by Peter Navarro, the University of California Irvine economics professor and former San Diego mayoral candidate who consulted Shames on investment strategies.

Having Navarro involved in the decision to invest in Red Rock “was a huge advantage and kept the analysts’ pitches very exciting,” Shames told UCAN directors in that same December 2005 email.

North Carolina steelmaker Nucor Inc. made a $1 million donation in 2011 to UCAN, which later agreed to turn over the same amount of money to Death by China. Documents of that transaction were also sought in the federal subpoena.

Earlier this year, UCAN filed for dissolution in state court after two employees raised questions about Shames’ management of the organization.

Among other things, they alleged Shames kept secret bank accounts, practiced law without an active state bar membership and accepted bonuses without telling the board or reporting the payments on UCAN tax filings. Shames says the allegations were all investigated and found to be without merit.

Shames declined to respond to questions about why he invested UCAN revenue in an out-of-state hedge fund.

In a statement he said: “The money market account to which (you) refer was a UCAN account, not a personal one. It is reflected in all of UCAN’s books and records and authorized by the board.”